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Income Tax Appellate Tribunal, JAIPUR BENCHES (SMC
Before: SHRI VIJAY PAL RAOvk;dj vihy la-@ITA No. 821/JP/2016
आयकर अपीलीय अधिकरण] जयपुर न्यायपीठ] जयपुर IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHES (SMC), JAIPUR Jh fot; iky jko] U;kf;d lnL; ds le{k BEFORE: SHRI VIJAY PAL RAO, JUDICIAL MEMBER vk;dj vihy la-@ITA No. 821/JP/2016 fu/kZkj.k o"kZ@Assessment Year : 2011-12 cuke M/s Chocopack Enterprises, Income Tax Officer, Vs. 7, Jai Ambay Colony, Ward 2(3), ESI Hospital, Ajmer Road, Jaipur. Jaipur. LFkk;h ys[kk la-@thvkbZvkj la-@PAN/GIR No.: AADFC1995R vihykFkhZ@Appellant izR;FkhZ@Respondent fu/kZkfjrh dh vksj ls@ Assessee by : Shri S.L. Poddar (Adv.) jktLo dh vksj ls@ Revenue by : Shri Raj Mehara (J.CIT) lquokbZ dh rkjh[k@ Date of Hearing : 04/10/2017 mn?kks"k.kk dh rkjh[k@ Date of Pronouncement : 13/10/2017 vkns'k@ ORDER PER: VIJAY PAL RAO, J.M. This appeal by the assessee is directed against the order of ld. CIT(A) dated 19.05.2016 for the A.Y. 2011-12.
There is delay of 38 days in filing the present appeal the assessee has filed a petition for condonation of delay which is supported by an affidavit.
2 ITA 821/JP/16_ M/s Chocopack Enterprises Vs. ITO
I have heard the ld. AR as well as ld. DR on condonation of delay of
38 days in filing the present appeal. The ld. AR of the assessee has
submitted that in the month of May, 2016 wife of the brother of the
assessee expired and therefore, the assessee was out of station during
the period when the limitation for filing the present appeal was to expire.
The ld. AR of the assessee has submitted that the delay in filing the appeal
is neither intentional nor willful but due to the circumstances which were
beyond control of the assessee. Hence, he pleaded that the delay of 38
days may be condoned and the appeal of the assessee may be decided on
merits. On the other hand, ld. DR has objected to the condonation of
delay.
Having considered the rival submissions and careful perused of
contents of the petition for condonation of delay as well as of the affidavit
I am satisfied that the assessee was having a reasonable cause in not
presenting the present appeal within the period of limitation. Accordingly,
in the facts and circumstances of the case as well as in the interest of just
the delay of 38 days in filing the appeal is condoned.
The assessee has raised the following grounds of appeal as under:-
“1. That under the facts and circumstances of the case the learned CIT(A) has erred in confirming the addition of Rs. 7,51,543/- on account of disallowance of commission expenses whereas there was
3 ITA 821/JP/16_ M/s Chocopack Enterprises Vs. ITO
no liability of the assessee to deduct the TDS as the payment made was only discount.”
The solitary issue raised in this appeal of the assessee is regarding
disallowance made by the AO under section 40(a)(ia) for want of
deduction of tax at sources in respect of the commission/discount to the
retailers of recharge cards. The assessee is a partnership firm and in the
business of distributorship of idea recharge cards during the year under
consideration. The assessee has debited the expenses to the tune of Rs.
48,94,323/- on account of discount on online scheme. The AO proposed
to disallowance this claim of deduction as the assessee has not deducted
tax as per provisions of section 194H. Accordingly, the AO made
disallowance of Rs. 7,51,543/- on account of commission expenses u/s
40(a)(ia). The assessee challenged the action of the AO before the ld.
CIT(A) and contended that the assessee has not made any payment
towards discount of Rs. 7,51,543/- debited in the P &L account but the
discount was allowed by the service provider and the transaction is routed
through the assessee company being a distributor. Therefore, the assessee
has only made the entries in the books of accounts without having any
direct role in allowing discount or commission to the retailer. It was also
contended that the assesse has no discretion in fixing percentage of
discount/ commission on recharge coupons but the service provider
4 ITA 821/JP/16_ M/s Chocopack Enterprises Vs. ITO
company has sole power in fixing the discount on sale of recharge
coupons as it launched scheme time to time. Thus the assessee has
forcefully contended that the payment of discount is made by the company
directly to the retailer and the assessee was under no obligation to pay
discount or deduct tax u/s 194H. The ld. CIT(A) was not impressed with
the contention of the assessee and upheld the disallowance made by the
AO.
Before the Tribunal the ld. AR of the assessee has submitted that
the assessee has no discretion in fixing percentage of discount in recharge
coupons on sale by retaliators as the company has sole powers in fixing
the above discount on sale as per the scheme from time to time. He has
reiterated the contentions raised before the authorities below. The ld. AR
of the assessee has relied upon the decision of Hon’ble Karnataka High
Court in case of Bharti Airtel Ltd. vs. CIT 372 ITR 33 and submitted that
the Hon’ble High Court while dealing with identical issue has held that the
distributors does not earn any income at the time of selling recharge
cards/vouchers rather the distributor incurred expenditure for purchase of
these cards and only after resale of those recharge cards the distributor
would derive income at the time of selling these prepared cards. The ld.
AR of the assessee has submitted that by applying the same analogy no
income is earned by the retailers at the time these vouchers/ cards are
5 ITA 821/JP/16_ M/s Chocopack Enterprises Vs. ITO
sold to the retailers but the retailers incurred the expenditure at the time
of purchase.
He has further submitted that the income earned by the retailers
would depend upon the time of sale and the scheme prevailing at that
point of time. Therefore, the ld. AR has submitted the deduction of tax at
source being a various responsibility and when there is no direct payment
or income at the time of sale of these cards to the retailer then the
assessee has no obligation to deduct the tax at source. The Ld. AR of the
assessee has submitted that when the assessee is not fixing any discount
or commission or making the payment of same to the retailer then, the
assessee is under no obligation to deduct tax at source.
On the other hand, the ld. DR has submitted that in the tax audit
report, the Auditor of the assessee has stated that the assessee has not
complied with the provisions of chapter XVII-B as no TDS has been
deducted by the assessee for commission paid to the retailers either own
account or through company under section 194H. He has further
contended that even the auditor of the assessee has stated that the
payment under consideration is commission and not discount as claimed
by the assessee, therefore, the provisions of section 194H are applicable in
respect of the amount in question for which the assessee has not
deducted tax at source. The ld. CIT(A) has followed the decision of
6 ITA 821/JP/16_ M/s Chocopack Enterprises Vs. ITO
Chandigarh Benches Tribunal in case of ITO vs. Smart Distributors (2013)
36 CCH 0466 as well as the decision of Hon’ble Karala High Court in case
of Vodafone Essar Cellular Ltd. vs. ACIT. He has also relied on the decision
of Hon’ble Calcutta High in case of Hutchison Telecom East Ltd. vs. CIT
232 taxman 665 and submitted that the Hon’ble High Court after
considering the decision of Hon’ble karnatka High Court in case Bharti
Airtel Ltd. Vs. CIT (supra) has decided this issue in favour of the Revenue
by holding that the assessee was responsible person for paying
commission and therefore, the provisions of section 194H are attracted. He
has relied upon the orders of the authority below.
I have considered the rival submissions as well as relevant material
available on record. The assessee’s firm engaged in the business of
distributorship of Idea recharge cards. The issue involved in case of the
assessee is in respect of sale of recharge coupons and not the sale of sim
cards. Therefore to the extent the issue of sale of sim cards by the service
provider it is held by the Hon’ble Karnatka High Court in the case of
Bharati Airtel Ltd. vs. CIT (supra) that the assessee is the service provider
had no obligation to deduct TDS and accordingly when the service
provider has is under no obligation to deduct tax, the distributor would
also not under obligation to deduct TDS. However, the said decision is only
on the issue of sale Sim cards and therefore, will not applicable in the case
7 ITA 821/JP/16_ M/s Chocopack Enterprises Vs. ITO
of the assessee. The Hon’ble Supreme Court in case of Bharat Sanchar
Nigam Ltd. vs. Union of India 282 ITR 273 as also observed in paras 85
and 86 which are reproduced as under:-
“85. In that case Escotal was admittedly engaged in selling cellular telephone instruments, SIM cards and other accessories and was also paying Central sales tax and sales tax under the Kerala General Sales Tax Act, 1963, as applicable. The question was one of the valuation of these goods. The State sales tax authorities had sought to include the activation charges in the cost of the SIM card. It is contended by Escotal that the activation was part of the service on which service tax was being paid and could not be included within the purview of the sale. The Kerala High Court also dealt with the case of BPL, a service provider. According to BPL, it did not sell cellular telephones. As far as SIM cards were concerned, it was submitted that they had no sale value. A SIM card merely represented a means of the access and identified the subscribers. This was part of the service of a telephone connection. The court rejected this submission finding that the SIM card was “goods” within the definition of the word in the State sales tax act.
It is not possible for this court to opine finally on the issue. What a SIM card represents is ultimately a question of fact as has been correctly submitted by the States. In determining the issue, however the assessing authorities will have to keep in mind the following principles : If the SIM card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the sales tax authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However, we emphasise that if the sale of a SIM card is merely incidental to the service being
8 ITA 821/JP/16_ M/s Chocopack Enterprises Vs. ITO
provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel and Restaurant Association of India v. Union of India [1989] 3 SCC 634—“subjects which in one aspect and for one purpose fall within the power of a particular Legislature may in another aspect and for another purpose fall within another legislative power. They might be overlapping ; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects”. No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction.”
Therefore, as the issue of sale of sim cards is concerned the Hon’ble
Supreme Court has clearly held that the sale of sim cards merely incidental
to the service being provided and only facilitates the identification of
subscribers their credit and other details it would not be assessable to sale
tax. As regards the sale of recharge coupons it is clearly a transaction of
sale of goods as held by the Hon’ble Supreme Court that the telephone is
nothing but a service. However, since the service is provided by the
company which is the service provider and assessee is only a distributor
and intermediatetory, therefore, the tax liability for paying the commission,
9 ITA 821/JP/16_ M/s Chocopack Enterprises Vs. ITO
if any, is attracted u/s 194H only against the person responsible for
paying the commission. In case in hand the assessee is not paying any
commission to the retailers but this commission or so called discount is
allowed and paid by the service provider. The assessee is an
intermediatetory and only recording this transaction in the books of
account for the purpose of completeness. Hence, when the assessee is
neither competent nor responsible nor actually paying any commission to
the retailer on sale of recharge coupons to the retailers then the
obligation for deduct tax u/s 194 H is attracted only against the service
provider and not against the assessee who is only a distributor and
receiving its share of the commission/ margins provided by the service
provider. The determination of sale price of recharge coupons is in the
sole domain of the service provider and the assessee is no role in
determining the retail price at which the retailer is selling the recharge
coupons to the customer or end user of the service. Therefore, in the
facts and circumstances of the case when the assessee’s role is only an
intermediatetory and passing the services from one hand to the other
hand then merely because the assessee is showing an amount of
commission/discount in the books of account for completeness of
accounts and transactions will not impute any liability of deducting tax at
source. The decisions relied upon by the ld. DR are also on the point
10 ITA 821/JP/16_ M/s Chocopack Enterprises Vs. ITO where the service provider is allowing or paying the commission to the
distributors or retailers and sale of sim cards as well as recharge coupons,
therefore, even for the sake of arguments if it is accepted that the
benefit allowed by the service provider to the distributors and retailers is
commission it is service provider who is responsible for paying the said
commission and therefore, the provisions of section 194H are not attracted
against the distributor. Accordingly, when the assessee is not directly and
indirectly in deciding the quantum of alleged commission/discount as well
as determining the retail price at which the recharge coupons is sold to the
customer then the provisions of section 194H cannot be applied on the
assessee. Consequently disallowance made by the AO u/s 40 (a)(ia) is
deleted.
In the result, the appeal of the assessee is allowed.
Order pronounced in the open court on 13/10/2017.
Sd/- ¼ fot; iky jko ½ (VIJAY PAL RAO) U;kf;d lnL; @Judicial Member Tk;iqj@Jaipur fnukad@Dated:- 13/10/2017 *Santosh आदेश की प्रतिलिपि अग्रेf’ात@ब्वचल वf जीम वतकमत वितूंतकमक जवरू vihykFkhZ@The Appellant- M/s Chocopack Enterprises, 7, Jai Ambay 1. Colony, ESI Hospital, Ajmer Road, Jaipur.
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